Dollar Bounces Back to End the Week

Good day, and a Happy Friday to one and all! I sure hope this turns out to be a Fantastico Friday, as it’s been a very long week for yours truly, and I need to have some fun today! Especially with all that I’ve gone through this week! I go to the hospital for preop testing this afternoon, so my “fun” will have to wait until the hospital is finished sticking me with needles.

The fun for the currencies and metals lasted all day yesterday, with gold at one time hitting $1,674. But as we get ready to close the books on the third full week of August, the dollar appears to have some strength left in it. German Chancellor Angela Merkel and Greek Prime Minister Antonis Samaras are meeting today. It will be interesting to see what comes of this meeting, but for now, the markets are feeling a bit queasy about the outcome of the meeting and are selling euros (EUR). I find that to be a bit premature, but then it’s the markets: These guys are way smarter than I!

The German chancellor has to walk a tightrope, for she’s got to appear tough for the German people but work with Greece to keep them in the eurozone. And Greece wants time and money. I don’t think the German chancellor has the time to give to Greece without ticking off her citizens. But she’s a master at manipulation. I would love to be a fly on the wall of these meetings.

I see where the research folks over at HSBC Holdings Plc, Europe’s biggest bank, are jumping on the Chuck bandwagon that flies a flag for the markets to recognize that the U.S.’s debt picture is very bad, and that it’s not all about Greece! Here’s the head of HSBC’s Asia currency research, “U.S. fiscal dynamics are actually much worse than what they are for the eurozone as a whole. We think the clock is ticking and the market will eventually catch up to this. When they do, then the dollar will start to go down.”

Always nice to see those large banks with the large research departments thinking like me. Of course, they could very well be Pfennig readers. Speaking of Pfennig readers, Chris Gaffney sent me a note last night and said that he met a Pfennig reader in the Denver airport, and then while he was waiting to check into his San Francisco hotel. They’re everywhere, they’re everywhere! You know what’s funny? Besides the people in this office, and my family and friends (not counting the ones that read only the first and last paragraphs), there are very few Pfennig readers in the St. Louis area.

Sorry to go off on the tangent. Let’s get back to work, Chuck! All the euphoria that was in the markets when I came in yesterday morning remained strong during the day, which surprised me a bit, in that I was sure the New York markets would take profits, especially in gold and silver, given their huge leaps on Thursday. But euros and precious metals just kept climbing higher. The price of oil backed off a bit, falling back below $98, and then overnight falling all the way back to the $95 handle. So is this the rubber band rebound we’ve been waiting for in gold and silver? It sure looks like it, but let’s see if we can close the N.Y. markets today without any takedowns at the close.

I read a precious metals dealer’s notes yesterday who said that “The precious metals are in the midst of a perfect storm from a technical, geopolitical and fundamental perspective that has allowed them to explode higher over the week.” (A-Mark Precious Metals Inc.)

I had mentioned most of that yesterday, saying that by moving through its 200-day moving average, gold was going to appear very inviting to the technical guys and could very well close out short positions in the metal. The same holds true for silver.

The Australian dollar (AUD) was the worst-performing currency overnight, falling through the $1.04 figure. A longtime customer, and friend, sent me a note yesterday on Australia. It’s pretty damaging to the A$, but I think you should be careful here, as a lot of people thought the A$ was ready for a ride on the slippery slope earlier this year only to get their heads handed to them. But here’s some of his note to me:

“BHP has halted plans for $20 billion of expansion projects for its Olympic Dam project. They had announced previously that they would require 4,000 construction workers and then 15,000 permanent workers. Poooooof. Gone. It’s likely the end of the mining cycle for the next 30 years. End of Australian boom times. End of rising Australian dollar.”

But what about China? Sure, their economy is moderating right now, but the Chinese government won’t sit idly by and watch this happen without feeling the need to stimulate the economy. So we could very well see the stimulus help to bring the Chinese economy back to form, which would reverse any mining slowdowns in Australia. So as I said, it’s nice to have the information, but be careful here, folks. I think China is the 800-pound gorilla in the room here. It all depends on them.

Next Friday, Big Ben Bernanke will be giving his speech at the Fed’s boondoggle, aka Jackson Hole. Given the FOMC meeting minutes this week, I would think that the markets will be looking for Big Ben to use the Jackson Hole speech to announce more stimulus for the U.S. economy, much like he did a couple of years ago when announcing the second round of quantitative easing (QE). I’m not so certain that he’ll do an encore presentation at Jackson Hole. But as I said, I do believe the markets will be drooling with anticipation, for Big Ben’s speech.

So much like last week, we had good rallies in the currencies and metals leading into the Friday session, only to see a reversal on Friday. Today, we just have July durable goods orders data to deal with. So it will all be about the German/Greek leaders meeting, of which I don’t really think anything will be made public. The markets will be left with a big fat zero to deal with today. So in the end, we could very well see a day that the dollar rebounds a bit.

The other day, I told you about how the Swiss National Bank (SNB) had begun to diversify their reserves, given all the euros they were accumulating. Last night, Reserve Bank of Australia Gov. Stevens told a parliamentary panel that the SNB has been buying the A$ since May. Stevens also told the panel that the SNB viewed the purchases of A$’s as a reflection of severity of Europe’s economic problems. “I never thought I would ever see such an anti-inflationary, conservative institution as that hold our currency as part of its reserves. It’s a remarkable thing, but it’s a picture of how bad the world is in Europe.”

I find it interesting that the SNB decided to buy A$, don’t you? I mean, they could have bought U.S. dollars, right? Of course they could have! But they chose A$. Again, let me remind you of something I mentioned the other day: Central Bank purchases of currencies are not thought of as “hot cash.” They held for the long haul.

See what I mean about being careful here? We could easily see the A$ go either way, but with central bank buying, it will be underpinned, at least! I did get a chuckle out of reading the text of his speech to the panel. It sounded like a country bumpkin that gets the sorority princess to take to the homecoming dance! She picked me? WOW! HAHAHAHAHAHA!

The markets haven’t given up on the thought that the Chinese government will introduce stimulus for the economy any day now. I believe the Chinese government will feel the need to introduce stimulus for the economy, and quite frankly, I’m surprised that they haven’t already done it. The Chinese renminbi has seen the governor removed from it this week and has been pushing higher versus the dollar. The moves are so small that you might not even notice them, but in reality, this week marks the fourth consecutive week that the renminbi/yuan (CNY) has posted a gain versus the dollar, the longest winning streak since April 2011.

Did you see the report that showed that The U.S. middle class has shrunk drastically over the last 10 years as Americans’ net worth has plunged, wages declined and standards of living slipped away, according to a report released on Wednesday?

Middle-income earners, long seen as the solid center of the country, are pessimistic and place the blame squarely on U.S. lawmakers, banks and big business, findings by the Pew Research Center showed.

“America’s middle class has endured its worst decade in modern history,” researchers wrote.

Since 2001, median household income has fallen from $72,956 to $69,487 in 2010, the report said.

Yesterday, we saw U.S. new home sales increase by 3.6% in July. However, we also saw the median selling price of those homes fall by 2.5%. So home prices are still adjusting, and I do believe this will continue for some time.

And it being a Friday, I’ll include the link to the U.S. Debt Clock, which to me is the most-important thing people should be talking about…

Then There Was This: My friend and former colleague Rob Foregger sent me a note the other day telling me about a project that he was working on:

“As most of you are aware, our national debt is out of control and unsustainable. Our nation is at a critical point where we need to take action now before severe austerity measures are required.

“Along with five friends, we decided that we had to try to do something about it. Specifically, we decided to create a nonpartisan bullhorn for us and other Americans to tell Washington to use common sense and compromise and FIX THE DEBT! Our collective bullhorn is the ‘Citizen’s Petition to Fix the Debt.’

“Since we launched our petition two weeks ago, we have gathered over 130,000 signatures, with a lofty goal of 10 million signatures by next July. Additionally, Alan Simpson and Erskine Bowles have formally endorsed our petition as the official petition of their Fix the Debt Campaign.

“I ask that you please take a moment to read the linked press release, and if you so choose, sign the linked petition below. The only way to get to our goal of 10 million signatures is for us to all spread our call to action to our friends and colleagues:

Great stuff, Rob! How about you? What do you think about this idea? You know… the new Pfennig website is a great place to put your idea down and let other people see it.

To recap: The currencies and metals had a very good day versus the dollar yesterday, but for the second week in a row, it appears that the dollar will ruin the currencies’ and metals’ bid to end the week on the rally tracks. Merkel and Samaras are meeting today, but don’t expect anything to be made public here that would move the markets in a clear direction. And RBA Gov. Stevens is gushing about the SNB choosing the A$ as a reserve currency.

About Chuck Butler:

Chuck Butler is the Managing Director EverBank Global Markets. The father of the Daily Pfennig® newsletter, Chuck has a career in investment services and currencies spanning 35+ years. His tacit knowledge of the global markets along with his inventive spirit has led to the creation of many distinct and innovative currency-based products. A respected analyst of the currency market, Chuck has made frequent appearances on MarketWatch, USAToday, CNNfn, Bloomberg Television, and CNBC as well as quoted in The Wall Street Journal, US News & World Report, and The Chicago Tribune.